Coal Power Overcapacity Hits Earnings

SCMP: Chinese coal-fired power firms to post weaker profits amid capacity glut

Huaneng Power International is expected to kick off on Tuesday the reporting season for Hong Kong-listed mainland Chinese firms that focus on coal-fired power generation, whose interim profits are expected to have fallen due to lower power prices and falling plant utilisation.

This is despite the fact that savings on fuel costs and interest expenditure from weaker coal prices and interest rate cuts have helped soften the blow.

“For players with more [coal-fired generation] exposure, we expect profit to be ... hurt by lower tariffs as a result of both tariff cuts in January [this year] and higher direct power [sales to big end-users that attract lower tariffs], and lacklustre output,” Michael Tong head of Hong Kong and China research at Deutsche Bank said in a research report.

On the bright side, coal-fired overcapacity represents latent demand when China's economy can finally utilize the capacity. When that will be is the big question...